Update: Payment Protection Program Flexibility Act of 2020 (PPPFA)

Update: Payment Protection Program Flexibility Act of 2020 (PPPFA)

Written on June 11th, 2020

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). The purpose of this Act was to amend the PPP loan forgiveness provisions of the previously passed CARES Act. The Payment Protection Program (PPP) is a provision of the CARES Act that permits small businesses to obtain low-interest loans before June 30, 2020, as a result of the economic downturn due to the COVID-19 pandemic. Certain expenses paid with PPP loan proceeds are eligible for forgiveness.

The Congressional response to the COVID-19 coronavirus is continuing to develop and change as new challenges emerge. At this time, the SBA has released limited guidance on how it will interpret the new provisions. This is a summary of the PPPFA and the SBA’s statements as of June 11, 2020. Every situation is different. Please consult with counsel to determine how these changes may impact you.

The Payment Protection Program Flexibility Act made the following changes to the PPP loan forgiveness:

  • The PPP Flexibility Act extended the covered period for loan forgiveness. The covered period is the period of time during which loan proceeds used to pay certain expenses may be forgiven. Previously, the covered period was the first 8-weeks following the loan origination date. The Act provides an extension to the earlier of 2 dates: (1) 24 weeks after the loan origination date; or (2) December 31, 2020. A borrower may still elect to use the original 8-week loan period if the borrower received the PPP loan before June 5, 2020.

Borrowers who have already spent their loan proceeds during the 8-week period may wish to elect to use the original 8-week period and accelerate their loan forgiveness process.

Even though the loan forgiveness period was extended, the PPP loan program will still end on June 30, 2020.

  • The Act also extends the deadline date to rehire employees to avoid a loan forgiveness reduction due to a drop in full-time equivalent employees (FTEs). Previously the deadline to rehire employees was June 30, 2020. Under the new Act, the deadline is now December 31, 2020.
  • The Act adds a new exemption from the loan forgiveness reduction based on employee availability. The CARES Act contained a provision that reduces loan forgiveness based on a reduction in the borrower’s workforce. The new exemption applies when an employer is unable to rehire an employee or a similarly qualified employee by December 31, 2020, or when the employer is unable to return to the same level of business activity that existed prior to February 15, 2020, due to compliance with certain government requirements or guidelines. Please consult with counsel to determine if the new exemption applies to your business.
  • The Act replaces the requirement that 75% of the loan forgiveness amount must be from payroll expenses with the requirement that 60% of the loan forgiveness amount must have been used for payroll costs.
  • The Act also modified certain provisions in the CARES Act regarding delaying payment of employer payroll taxes and the deferral period for payments on the principal and interest of PPP loans. Please consult with your financial advisor or legal counsel to determine how these modifications may impact your business.

Lisa K. Cagle has provided the summary above. Please reach out to Lisa or other attorneys at our firm with any further questions.